Zacks Analyst Blog Highlights: D. R. Horton, Lennar, Cost Plus and Celgene Corp.

CHICAGO -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: D. R. Horton (NYSE: DHI), Lennar (NYSE: LEN), Cost Plus (Nasdaq: CPWM) and Celgene Corp. (Nasdaq: CELG).

See the latest posts to the Analyst Blog by visiting: http://at.zacks.com/?id=2673

Here are highlights from Tuesday's Analyst Blog:

Horton Numbers a Proxy for Housing

D. R. Horton (NYSE: DHI) reported a 37% y-o-y decline in net new orders, with all six regions showing negative comparisons. Orders fell in the Northeast (21%), Southeast (-30%), South Central (-34%), Southwest (-39%), California (-59%), and the West (-28%). Given our belief DHI is a good proxy for the housing industry, today's report indicates the housing market is still under severe pressure, despite record low interest rates and a very low unemployment rate.

Investors remain concerned about the risk of a price decline, which explains a cancellation rate of 32%. The concerns on price have merit, with two of the company's markets experiencing selling price pressure. More specifically, average selling prices in the Southeast and the Southwest fell 14% and 11%, respectively. The markets that were up saw price appreciation in the low single-digit range. On a net basis, average selling prices on all orders taken in the second quarter fell 5.9%.

With the national inventory of new and existing homes on the rise, we see continued risk of further price erosion and continued risk that starts need to fall further. This will negatively impact all the homebuilders, including DHI, and helps to explain Lennar's (NYSE: LEN) decision yesterday to ask sub-contractors for lower prices on previously completed contract work. With difficult industry conditions likely to persist for the next three quarters at the very least, we expect DHI to continue to work with suppliers to regain some margin lost from lower prices and heightened incentive use.

Despite these efforts to keep SG&A [sales, general and administrative] low, we believe it will not be enough to stave off overall margin deterioration. Given our forecast for weak average selling prices and increased incentive use, we expect DHI's gross margins to remain under pressure for the remainder of the year. As a result, we maintain our previously lowered FY07 EPS [earnings per share] estimate of $2.04.

Initiating Cost Plus at a Hold

We are launching coverage of Cost Plus (Nasdaq: CPWM) with a Hold rating and a target price of $10 per share. The company continues to face difficult industry conditions, as a weak housing environment is creating headwinds for home furnishing retailers. Even so, Cost Plus has been trying to turn around its business with efforts to improve store traffic, sales, and profit margins.

We believe the company's turnaround efforts should position Cost Plus to resume its growth trajectory of a few years ago when industry conditions finally improve. Until industry conditions show signs of improvement, we prefer to remain neutral on the stock. The company is scheduled to report earnings on April 12.

Celgene Benefits Reflected in Price

Celgene Corp. (Nasdaq: CELG) is a fully integrated biotechnology company focused on discovery, development and commercialization of drugs and cell-based therapies in the area of cancer and immune/inflammatory diseases. Its leading products are Thalomid (thalidomide) and Revlimid. Thalomid is an immunomodulatory agent with multiple-use potential.

However, the growth driver is Revlimid, currently approved for MDS and multiple myeloma. Label expansion on Revlimid into other hematological cancers should offer enormous upside for Celgene. We believe all this is currently reflected in the stock. Our price target is $64.

Valuation is our primary concern. Based on our model, Celgene should post EPS [earnings per share] in 2007 of $0.97, excluding stock based expenses. That is very impressive considering the $0.49 delivered in 2006. However, based on current price, the stock is trading at 60.7 x 2007 EPS. This is a huge premium to the biotechnology peer-group P/E [price-to-earnings ratio] of 36x.

See the latest posts to the Analyst Blog by visiting http://at.zacks.com/?id=2645

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